Lehman Brothers has poached staff from derivatives market leader SG Securities as it launches itself into Hong Kong's covered warrants business. Two senior members of SG's derivatives trading team left to develop and trade the product at Lehman, investment bankers said. Lehman yesterday issued its first warrant, a call on Pacific Century CyberWorks. A call bets that the price of the underlying stock will go up, while a put bets it will go down. Lehman enters the warrants business at a time when issuance and turnover are on the upturn, partly thanks to the evaporation of the technology stock boom earlier this year. Turnover in derivative warrants last month amounted to HK$20.4 billion, or 7.66 per cent of total market turnover, according to the stock exchange. That compares with turnover of about $10 billion a month last year. There have been 140 new issues this year, compared with 92 last year. The covered warrants business slowed in spring when retail investors were preoccupied with trading overnight 'dotcom' stocks and other speculative technology stocks. 'I think all the dotcoms and third-liner people have lost quite a bit and are jumping into more geared products like warrants,' a trader said. Warrants are popular with retail investors because they give cheap, leveraged exposure to pricey blue chips and other large-cap stocks. As leveraged bets they can magnify returns in the underlying stock - but they can all lose value if the stock moves in the wrong direction. Issued by big investment banks, covered warrants are normally distributed through smaller, local brokers. It is a lucrative business for investment banks, which generally make greater margins on covered warrants than for over-the-counter derivatives designed for professional investors. However, they can be as risky for issuers as for investors. The current market leaders did little business in 1997, when warrants were a competitive and red-hot industry. Many of the big players suffered losses in the downturn. SG and Merrill Lynch dominated the business in the generally quieter trading seen in the past two years. Merrill was suspended from the business earlier this year because of a violation, with new players crowding in. Merrill is expected to return to the market in November.